Rise Career Glossary | Purchasing Terms and Definitions

List of Frequently Used Terms in a Purchasing Department

1. Bill of Materials (BOM): A comprehensive list of all the materials and components required to manufacture a product. It includes item details, quantities, and sometimes even pricing information.
2. Contract: A legally binding agreement between a buyer and a seller that outlines the terms and conditions for the purchase or sale of goods or services.
3. Delivery Lead Time: The amount of time it takes for a supplier to deliver goods from the date of purchase order placement. It indicates how long it will take for the items to reach the buyer's location.
4. EOQ (Economic Order Quantity): The optimal order quantity that minimizes the total cost of inventory, considering factors such as holding costs, ordering costs, and demand forecasts.
5. Freight Forwarder: A company that arranges the transportation and forwarding of goods on behalf of the buyer. They handle logistics, documentation, and customs clearance.
6. Incoterms: International commercial terms that define the responsibilities of buyers and sellers related to the delivery of goods. They clarify who bears the costs and risks at each stage of transportation.
7. Just-in-Time (JIT): A production and inventory management approach aimed at minimizing waste by receiving and producing goods only as needed. It reduces inventory carrying costs and enhances production efficiency.
8. Key Performance Indicators (KPIs): Metrics used to measure the performance and effectiveness of the purchasing department. Examples include supplier quality, delivery time, cost savings, and inventory turnover.
9. Logistics: The process of planning, implementing, and controlling the efficient flow of goods, services, and information from the point of origin to the point of consumption.
10. Material Requirements Planning (MRP): An inventory control system that determines the quantity and timing of materials needed for production based on the master production schedule and inventory levels.
11. Negotiation: The process of reaching an agreement between a buyer and a supplier on terms, conditions, and prices to achieve the best possible outcome for both parties.
12. Obsolescence: The state of a product or material becoming obsolete or outdated, often resulting in excess inventory. It may require disposing of or finding alternative uses for these items.
13. Purchase Order (PO): A document issued by a buyer to a supplier that confirms the purchase of goods or services. It includes details such as items, quantities, prices, delivery dates, and terms of payment.
14. Quality Assurance (QA): The process of ensuring that purchased goods or services meet the required quality standards, specifications, and customer expectations through inspections, tests, and audits.
15. Reorder Point: The inventory level at which a new order must be placed to avoid stockouts. It takes into account lead time, demand variability, and safety stock to ensure uninterrupted supply.
16. Sourcing: The strategic process of identifying potential suppliers, evaluating and selecting them based on criteria such as price, quality, reliability, and capabilities.
17. Supplier Evaluation: The process of assessing and rating suppliers to determine their capabilities, performance, and overall suitability for meeting the organization's purchasing needs.
18. Transportation Management System (TMS): Software and tools used to plan, execute, and optimize the transportation of goods. It helps streamline processes, track shipments, and manage carrier relationships.
19. Vendor Managed Inventory (VMI): A system in which a supplier is responsible for monitoring the buyer's inventory levels and refilling as needed. It helps improve supply chain efficiency and reduce stockouts.
20. Warehouse Management System (WMS): Software and processes used to manage warehouse operations, including receiving, storage, picking, packing, and shipping of goods.